Paul Jenkins: Alaska must overhaul ACES to prosper

Paul Jenkins

Ripples from the state Senate bipartisan working group's myopic, greedy effort to block oil industry tax cuts or reform Alaska's Clear and Equitable Share oil tax to encourage investment and North Slope production are beginning to splash up on Alaska's economic shoreline.

In one news account, we learn that crude oil from North Dakota's Bakken oil field is being shipped by train to Washington refineries -- instead of the more expensive North Slope crude.

It gets worse. The Alaska Journal of Commerce's Tim Bradner reports BP is throwing in the towel on its costly North Slope heavy oil pilot project because Alaska seems unwilling to change ACES, and, oh, the three major North Slope producers say a large natural gas pipeline and liquefied natural gas project are hanging by a thread, too.

None of that is good for Alaska.

BP Alaska President John Minge described the state oil tax to a recent Resource Development Council audience as a "short term, going-out-of-business policy," but he was being circumspect. It is no less than government-sanctioned, white-collar crime.

Its 25 percent base rate and ratcheting mechanism that lacks bracketing contributes to a ridiculously punitive marginal tax rate in Alaska of more than 90 percent at higher oil prices and does absolutely nothing -- nada, zip -- to encourage long-term industry investment in Alaska. A shylock working the streets of New York City would go to the slammer for charging those rates.

ACES adds to energy costs, and if you want jobs, a major gas line project, a sustained oil industry and affordable energy, Minge said, "the current policy is not delivering that outcome."

The excessive tax dollars ACES rakes in could enhance and maintain legacy oil field infrastructure and produce more oil, which would produce more gas. One needs the other. Maintenance and enhancement of the legacy fields - now discouraged by ACES - is absolutely necessary because a large gas line project would need to operate until 2065, when Prudhoe Bay would be 90 years old.

"ACES is a major impediment to a major gas project," Minge said. "Without change, I don't see it going forward."

Because of the tax, North Slope investment and production are down. So is exploration by the Big Three for new oil. Trans-Alaska oil pipeline throughput is dropping by 6 percent a year and is expected to drop to 300,000 barrels daily in a decade. The union-directed, Democrat-driven coalition in the Senate managed for years to block ACES reform. Its aim seemed to be grabbing all it could, and the future be hanged.

It grabbed a lot -- about $2 billion a year too much from North Slope industry shareholders. Now the industry, seeking competitive, stable taxes, is losing interest in the long term and is beginning to concentrate on short-term, easy oil here.

That could be fixed. Alaska has stepped up to settle Point Thomson litigation to clear the way for a large gas project -- with a price tag of up to $65 billion - and, lucky for Alaska, we will have a new state Senate in January.

Voters weary of coalition shenanigans already sent some of its members packing. The political stars, as pundits are wont to say, are aligned. We have a Republican House and Senate and a Republican governor. The last time that happened, with Frank Murkowski as governor, it was a bust. We already have lawmakers wondering whether this would be a good time to advance Republican social issues.

The next legislative session will require focus and leadership, more than we have seen in recent years. With ACES unreformed, the only thing certain in Alaska anymore is uncertainty.

It does not have to be that way. We are not poor. We've got lots of stuff; more stuff than almost anybody else. We have more than half the U.S. coal reserves. We have multitrillion cubic feet of gas and billions of barrels of oil beneath the North Slope and offshore.

Considering copper, gold, molybdenum, gravel, fish, timber, tourism and the array of opportunities and natural resources in Alaska - not to mention $57 billion or so in savings - we should be on top of the world. We are not. What we lack is leadership and determination. This new Legislature must address that. ACES is a great place to start.

If lawmakers fail, the only businesses booming here will be those making "Going Out of Business" signs.

Paul Jenkins is editor of the